Group 1 Automotive repays $63 million of long-term debt, plans to continue reducing debt

By Jennifer Lanning Drey

Portland, Ore., Feb. 19 - Group 1 Automotive, Inc. used available cash to repay $63 million of long-term debt during the fourth quarter, John Rickel, the company's chief financial officer, said Thursday during its fourth-quarter earnings conference call.

"Our top priority at this time is to use the cash that we generate to further strengthen our balance sheet by paying down debt," Rickel said.

The company reduced long-term debt by $176.3 million for full-year 2008.

Group 1 ended the fourth quarter with cash and cash equivalents of $23.1 million and total liquidity of $174 million.

The company does not expect to complete any franchise acquisitions in 2009.

In addition, based on the economic uncertainty, Group 1 has suspended its dividend in order to preserve cash and protect its balance sheet, Earl Hesterberg, chief executive officer of Group 1, said during the call.

The company will also review all planned capital spending and expects capital expenditures to be less than $30 million in 2009, compared to $53 million in 2008.

The company also announced a cost-reduction initiative in January aimed at achieving $100 million of cost savings. The majority of the reductions are likely to be in place by March 31, the company said.

"Although we are confident in our balance sheet and our ability to meet our covenants under a wide range of economic scenarios, we believe it prudent to continue to further strengthen our balance sheet," Rickel said.

Group 1 said it was in compliance with all of its debt covenants at the end of the fourth quarter.

Reduced traffic lowers sales

In the fourth quarter, Group 1's same-store revenues fell by almost 28% to $1.1 billion due to reduced traffic in dealerships caused by consumer uncertainty, Hesterberg said.

Group 1 posted a fourth-quarter net loss from continuing operations of $44.5 million, compared to net income from continuing operations of $6.3 million in the prior-year fourth quarter.

During the period, the sharp falloff in consumer demand was coupled with a shift in customer preference toward trucks as gas prices fell. The resulting inventory imbalance among new vehicles is likely to take most of the first quarter to adjust to market conditions, Hesterberg said.

Group 1 is a Houston-based automotive retailer.

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